By recent American standards, the golden goodbye awarded to Chuck Prince, Citigroup’s sacked chairman and chief executive, was relatively modest. Mr Prince walks away with $41 million (£19.5 million) of bonuses and option profits and gets an office, car, chauffeur and administrative assistant for five years.

The payoff is just a quarter of “a Stan” - the $161 million given to Stan O’Neal, who was ousted a few days earlier from the top of Merrill Lynch. It also looks restrained beside the $210 million paid to Bob Nardelli after his unhappy tenure at Home Depot. But then Mr Prince presided over a catastrophic lending spree at Citigroup. At least $14 billion has been written off since the credit crunch bit and Citigroup’s market valued has collapsed by about $50 billion in the past two weeks alone.

Pay in the big investment banks is at the very heart of the unravelling sub-prime investment banking scandal. Departures and ridiculous payoffs are the consequence. But there is more to it than that – pay structures are responsible for creating the mess in the first place.

From the chairman down to the lowliest trainee trader, rewards dance to the tune of an annual cycle. But shareholders (and clients) have entirely different time horizons. Four years of strong profits growth followed by a disastrous fifth year in which all the good work is undone is still fine for employees but lousy for shareholders.

Employees don’t have to pay back past bonuses when the owners suffer a catastrophic loss. Bonuses are asymetric. Bank employees have an incentive to take positions or structure investment products that usually offer good returns but very occasionally blow up badly.

It is surely time for shareholders of banks to demand a more sophisticated system for rewarding staff – one that really does align their interests with shareholders’ rather than just claiming to. Why has the standard one-year cycle not been extended to much longer periods. Why aren’t bonuses put in escrow and released only when value has truly and irreversibly been achieved for shareholders?

It is only shareholders who can demand these changes. The bankers have no incentive to alter the status quo. Bank supervisors, too, should be putting reward structures under just as much scrutiny as they devote to balance sheets and stress-testing models.

Otherwise, it will continue to be perfectly rational for self-interested future Chucks and Stans to take unacceptable bets with their shareholders’ money.

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